The New Tax Bill, Opportunity Zones and Redevelopment in Detroit

[renf]

South Carolina Senator Scott inserted a provision in the recently enacted tax bill to promote investments in low income/high poverty census tracts. Governors are eligible to designated one-quarter of such tracts in their state as Opportunity zones. Large fiscal institutions are now able to establish Opportunity Funds that may only make investment in Opportunity zones. Here is the incentive. If you have unrealized capital gains, you may transfer them to an Opportunity fund. If you keep your money in the fund for seven years, you will pay capital gains taxes at 85% of the going rate of about 24%. If you leave your unrealized capital gains in the Opportunity fund for 10 years, you will pay even lower capital gains taxes.

There are quite a few locations in Detroit and the ring that would seem to quality. They currently have high poverty rates but there is development or redevelopment nearby, so they have investment potential. Does anyone know who is taking the lead on this for the mayor or the governor?

Is this the most serious federal effort to develop challenged urban neighborhoods since the Clinton administration enacted Jack Kemp’s proposal for Empowerment Zones. I have the impression that the Detroit Empowerment Zone has been, at the very least, moderately successful. Does anyone have
convincing evidence?

[Wesley Mouch]

Great question.

The answer may depend on what you mean by 'successful'. Suspicious by nature of political interventions, I'd guess that there were successes, but they were probably fleeting. When these kind of regulations are passed, an entire industry erupts to game the system -- take the benefits -- and avoid the costs. I'd rather just see good policing.

[Richard]

It sounds risky,what happens if the zone flops,where is the return for the investor verses the institution.

Talking about parking 2 To 3 hundred thousand for 10 years that the bank gets to play with,but it is set up as the rich get richer,which is okay if the incentive works and zones are developed and people are put to work.

Not sure now but my expirence with Detroit empowerment zones 7 years ago was that they were fluid and encouraged speculation and the sitting on large buildings with no incentive to rehabilitate because of the tax breaks.

So it left lots of room for abuse,in some cities empowerment zones did serve their intended purposes but not really on the large scale as intended.

When it comes to direct impact on a depressed erea,I think the programs like the hardest hit funds etc. realized the most immediate results to the person street leval,far more then empowerement zones but required a large cash contribution from the government.

On the surface this sounds like collecting private funds in order to encourage development verses public taxpayers.

Kinda like the same way the new bridge is being funded,with the currant administration it seems like the push is to encourage private investment in the public to help offset the government drain,or more creative ways to deal with massive undertakings like infrastructure.

Just my thoughts anyways,I am going to send it over to the smarter then me accountant.

I would be interested in also hearing CTYs input.

[Hypestyles]

there had better be a lot more announcements about redevelopment projects throughout the city this year.

[renf]

Yesterday, the Michigan State Housing Authority announced which census tracts in Michigan qualify as "Opportunity Zones" for the new federal tax law. The state may designate up to one-quarter of the census tracts in the state as "Opportunity Zones." According to the new tax law, investors who invest within these census tracts and hold on to their property for ten years will pay no capital gains taxes when they realize their capital gains. This was Senator Scott's attempt to encourage investors to invest in low income areas.
The areas designated as Opportunity Zones in Detroit include Indian Village, West Village and Palmer Woods which are hardly low income areas. However, all of the water front and downtown seem to be included. Much of Jefferson Chalmers and much of southwest Detroit is included. Here is a link to a map:
http://www.michigan.gov/mshda/0,4641...3034--,00.html

Does anyone know how the Opportunity Zones were selected by Governor Snyder's administration? I think census tract numbers are available so someone could determine if the Opportunity Zone in Detroit has a higher or lower overall poverty rate than the rest of the city. Will this new provision of the tax law stimulate investment in Indian Village, West Village, Detroit's Gold Coast and some low income neighborhoods?

[mwilbert]

Yesterday, the Michigan State Housing Authority announced which census tracts in Michigan qualify as "Opportunity Zones" for the new federal tax law. The state may designate up to one-quarter of the census tracts in the state as "Opportunity Zones." According to the new tax law, investors who invest within these census tracts and hold on to their property for ten years will pay no capital gains taxes when they realize their capital gains. This was Senator Scott's attempt to encourage investors to invest in low income areas.
The areas designated as Opportunity Zones in Detroit include Indian Village, West Village and Palmer Woods which are hardly low income areas. However, all of the water front and downtown seem to be included. Much of Jefferson Chalmers and much of southwest Detroit is included. Here is a link to a map:
http://www.michigan.gov/mshda/0,4641...3034--,00.html

Does anyone know how the Opportunity Zones were selected by Governor Snyder's administration? I think census tract numbers are available so someone could determine if the Opportunity Zone in Detroit has a higher or lower overall poverty rate than the rest of the city. Will this new provision of the tax law stimulate investment in Indian Village, West Village, Detroit's Gold Coast and some low income neighborhoods?

The map does not show Palmer Woods as included. It does include the State Fair area across Woodward, which is the Fairgrounds and the neighborhood south there around Goldengate. That area definitely deserves inclusion.

[renf]

Thanks for the correction about Palmer Woods. I found the map a little
challenging to read. I believe it contains census tract numbers so a bit
more work is needed.

I believe the Michigan Central Station is within the new Opportunity Zone so a redeveloper could, possibly, renovate the property and pay not capital gains if he or she holds the property for a decade. Who know how
this new federal policy will work out?

Thanks

[renf]

Saturday's New York paper included another essay about the apparent attractiveness of Opportunity Zones for deep pocket investors who wish to avoid capital gains taxes while profiting from investment in a neighborhood with a poverty rate of 25% or more.

https://www.nytimes.com/2019/05/17/y...sultPosition=5

With Jack Kemp's Empowerment Zones, investors had to do at least something about training and employing residents from the zone. Apparently, the federal tax authorities are not going to impose such a requirement for those who invest in these new Opportunity Zones that Senator Scott helped to create.

Almost all the census tracts along the Detroit River in Detroit and many census tracts in or neat Midtown or other relatively prosperous parts of the city are included in the Opportunity Zones that the Michigan State Housing Authority designated earlier this year. Given that these Detroit Opportunity Zones adjoin areas where investors are already being made, you would think that might provide attractive locations for rich investors with unrealized capital gains who can wait seven to ten years and then be freed from paying capital gains taxes.
Is anyone monitoring what is happening in Detroit's Opportunity Zones?

[renf]

A map of the Opportunity Zones in the three county met area designated by the Michigan State Housing Authority may be found at the following link"

https://www.michigan.gov/mshda/0,464...3034--,00.html

It sure looks like many of the designated census tracts in Detroit have potential for successful capital investments.